Tuesday, October 18, 2005

Housing Sticker Shock

Part 3 in the Record Series on the Housing Boom/Bubble..

Housing Sticker Shock by Dave Sheingold

Another typical real estate cheerleader article. No merit at all to this. Is Dave bragging about the rapid price runups in Northern NJ just for the sake of bragging? Articles of this sort do nothing but justify the behavior of recent purchasers. Dave, thanks for telling us what we already knew, that prices have gone up astronomically with no justification at all.

This is nothing but an advertising piece on real estate.. This type of behavior is similar to why automobile manufacturers advertise so heavily. It's not to attract new buyers, which would likely be anyones first guess. It's to mitigate buyers remorse and make people feel good about their new car purchase.

Caveat Emptor,
Grim

14 Comments:

Blogger InvestorDavid said...

I had a nice long conversation with the writer, not Sheingold, but Gopal -- a very nice fellow -- and expressed my concern about real estate market. I also told him that I was gagging when I heard the term, Bubble Wrap.

I do believe him that his writing is not influenced by the revenue generated by the real estate advertisement.

I also suggest him a few ideas about future article regarding real estate, implication of bankruptcy, etc. And I said that papers should not be used as a propaganda machine by the real estate agents or the mortgage bankers -- he assured me that it didn't happen and will not happen.

He is a very nice guy and if you have a time, talk to him.

10/18/2005 12:00:00 PM  
Blogger grim said...

I spoke with Gopal briefly yesterday afternoon. I had the same opinion, nice fellow. I did wish I had gotten to him earlier so that I might have provided a comment. While, it's correct that as journalists they shouldn't necessarily be biased or alarmist, I, myself, have no problem taking on that role.

-grim

10/18/2005 12:32:00 PM  
Blogger RentinginNJ said...

I won’t second guess his sincerity in writing the article, but it seems like he just called a few RE agents to get some anecdotes about prices increases. In the first 2 articles of the series, at least there appeared to be an attempt to present the other side of the issue. I just didn’t see the point of this latest article. Yes, we all know prices have increased substantially over the past few years. I’m guessing the point of this article is that everybody is special. Every neighborhood in North Jersey has a special reason why steeply escalating home prices are justified. Paterson is a good place for immigrants to get a start. Korean’s bid up homes in Palisades Park. Orthodox Jews want to be in walking distance to a temple.

So, I guess before the bubble there were no Jewish, Korean or immigrant neighborhoods? Please.

10/18/2005 12:36:00 PM  
Anonymous Anth said...

I see a lot of "We need to hold these RE and pro-RE journalist people accountable". I dunno, Grim's "caveat emptor" should speak for itself. Are buyers making mistakes? Maybe. Who is responsible for these mistakes (If they are mistakes)? The buyer, not the RE guy with the handlebar mustache that said "STEP RIGHT UP....sucker.." or the journalist that doesn't feel this plight who tendered in a poorly researched article.

The signs are all there. Want a laugh? Go to:
http://money.cnn.com/real_estate/

Check out the headlines:
Mortgages: 6% and above
Mortgage applications down again
Mortgage nightmare
Not many can afford California home

I can only see these tones continuing.

10/18/2005 01:03:00 PM  
Anonymous Anonymous said...

This article is by a different author than the first 2 articles.

In any case, I think you're misunderstanding the purpose of this article. It was to point out some of the impact that the bubble has had on home buyers. That is a valid topic for an article, and the article points out how one family took out very risky mortgages to get a crummy place in Paterson (one of the worst places in the US). Equally, the article points out how Edgewater has developed in the last few years. I think RE prices in edgewater are seriously inflated (they've probably risen around 150% in 4 years), but not all of that is going to go away when the bubble burst, because the town has developed a great deal.

Now, if I had written the article, I would have thrown in a few paragraphs about people who chose to rent or who are moving out of the area because they can't afford to stay here. But overall, I dont' see anything biased about the article.

10/18/2005 01:16:00 PM  
Anonymous Anonymous said...

Politicians need a new gravy train for increased tax revenues. Real estate will be the gravy train. The sucking middle class will not have a problem undoing tax writeoffs for 2nd 3rd homes and cut mtg deduction to $500k.
It's coming.

A winter freeze is hitting real estate.

10/18/2005 01:36:00 PM  
Blogger RentinginNJ said...

I didn’t realize the author was different for this article. Thank you for pointing that out. I'm not claiming he is bias, but the article does appear one sided. This article basically said that houses are expensive. Yes, we all know that. But this series is called “Boom or Bubble”, yet a bubble was not mentioned once. No mention that these high prices might not be sustainable. Ask yourself, what would an uniformed reader take away from reading this? One might think that prices are high, but they appear justified and interest rates are low. Suck it up, jump in now while you still can, even if it’s in a bad neighborhood, and trade up in a few years.

10/18/2005 01:46:00 PM  
Anonymous Anonymous said...

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10/18/2005 04:35:00 PM  
Anonymous Anonymous said...

The corrupt appraisal industry under scrutiny.
The Chicago Tribune discovered that appraisal rules are changing. "What's a house worth? Whatever a serious buyer is willing to pay for it, goes an old real estate maxim. While supply and demand play a big role in setting home prices, how a home's worth is evaluated has raised concern at Fannie Mae."

"Stung by a significant number of loans made on properties with inflated appraised values, Fannie Mae led a task force to revamp standard appraisal forms. Starting Nov. 1, that form is being changed and appraisers will need to do more to verify how they found information on comparable sales, which are used to justify the purchase price of a home, says T.J. McCarthy, a Tinley Park appraiser who taught a class on the new forms."

"The new form will ask 'the data source for how [the appraiser] found a comparable [for] a three-bedroom house,' McCarthy says."

"The forms also will require more detail on prior sales of listings of the property over the last couple of years, says Mark Simpson, director of property valuation standards at Fannie Mae. That should help protect buyers from purchasing a property that is being resold quickly, or 'flipped,' at an inflated price."

10/18/2005 06:16:00 PM  
Blogger grim said...

A little too late on the part of Fannie. This is nothing but a CYA (Cover Your As&) move in an attempt to retain confidence in their MBS portfolio.

A little background for readers that don't really understand what that means.

Fannie Mae and Freddie Mac are GSEs (Government Sponsored Entities) which means while they were created by government charter, they are not part of the US government (although there is an implied guarantee there).

Fannie and Freddie buy mortgages from lenders and repackage them into securities. These securities are packaged, graded, and sold as investments. Herein lies the rub.. Who holds the risk? Banks and lenders no longer care about risk, because they move the mortgage through Freddie and Fannie. Freddie and Fannie don't care, because they keep the best for themselves and funnel everything else out to organizations like pension funds or other countries. This is where the implied guarantee comes in. These organizations are considered "too big to fail", thus, if they were ever in a position where they might fail, there is an implied government bailout (i.e. ultimately the taxpayers will pay for the wanton recklessness in lending that is happening today).

As long as large organizations and other countries (i.e. China), buy this securitized debt from Fannie and Freddie, our mortgage rates stay low and the party continues (Greenspans Conundrum). If these buyers lose faith in the quality of the Mortgage-backed securities, they stop buying, and rates must increase to the point where the return is worth the risk.

Ultimately, this is just another sign that the party is over.

grim

10/18/2005 06:45:00 PM  
Anonymous Anonymous said...

It's a complete basketcase.

The only ones benefitting in the end are the industry epeople seling off the risk to the taxpayors.
I expect huge investigations and lawsuits flying in a few yeas.

10/18/2005 07:18:00 PM  
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